As Rupee Slips, Indian Firms Seek Protection

Jul. 7, 2013 - 03:45AM
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NEW DELHI — The surge in the value of the US dollar against the Indian rupee has prompted Indian defense companies to ask for protection against currency fluctuations when their bids are evaluated against global competition.

Domestic private-sector defense companies say even as the Defence Ministry gives preference to domestic companies in big-ticket tenders, overseas bidders are gaining an unfair advantage because of India’s plunging currency. They also complain that foreign bidders aren’t subject to domestic value-added taxes, which further raise domestic firms’ prices.

“The discrimination comes from the fact that while the Indian companies bid for the projects in Indian rupees, the foreign original equipment manufacturers [OEMs] can bid in their own currency,” said Rajinder Bhatia, CEO of Bharat Forge. “The rupee, if it depreciates, will have major impact since it will mean you are getting less dollars for the same amount of money.”

The Federation of Chambers of Commerce and Industry (FICCI), the lobbying agency for domestic private companies, approached the MoD recently to demand protection against currency fluctuation for defense companies, an FICCI executive said.

An MoD official said the matter has been taken up with the Indian Ministry of Finance.

As of July 3, $1 was equal to almost 60 rupees. One month ago, that was closer to 56 rupees.

The real value of the 2013-14 defense budget of more than 2 trillion rupees has fallen 10 percent due to the drop in the currency’s value, which could affect defense spending, an MoD source said.

“Over the last 30 to 60 days, the [Indian rupee] has depreciated from 8 percent to 15 percent against all major foreign currencies, and thus our defense purchasing power has gone down proportionately,” said K.V. Kuber, a retired Indian Army colonel and CEO of Sugosha Consultancy Services.

The MoD official said no program is being stalled because of the falling rupee, but admitted the price of the weapons that haven’t been formally contracted will go up for the Indian government.

Domestic private defense companies also have demanded parity with overseas OEMs in terms of tax incentives.

“A foreign company does not pay any customs duty or any other taxes and duties on its products while importing them to India, whereas Indian companies will be forced to pay value-added tax and octroi [local taxes], etc., and, in some cases, even excise, and hence the disadvantage,” Bhatia said.

A senior executive of a non-Indian defense company said, “There should be open competition in the true sense of the word,” adding that the current method of evaluation of lowest bidder status based on the US dollar is correct and according to international standards.

According to the MoD’s Defense Production Policy announced in April, India will buy weaponry and equipment from overseas only as a last resort. The production of weapons will be prioritized so that buying from overseas occurs only after ensuring that the weapons cannot be bought from home.

The demand for protection would only help in cushioning the input costs of imported parts and not make any substantial difference in bids, as the overseas OEM companies have an edge in terms of pricing, said Nitin Mehta, a defense analyst based here.